Overtime pay extended to millions under new federal rule

According to the Labor Department, an estimated 146,000 workers in
California fall between the state’s salary threshold and the new, higher
federal standards.

According to the Labor Department, an estimated 146,000 workers in California fall between the state’s salary threshold and the new, higher federal standards.

Photo: Andrew Harrer, Bloomberg

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Valeri Bolkvadze, one of 185 employees at Dumbo Moving & Storage, where 50 of the workers are on salary, waits at a service elevator after packing up an apartment in New York, May 16, 2016. Employers say a change in the salary cutoff for overtime pay will be a challenge to small businesses that pride themselves on a scrappy, entrepreneurial culture. (Yana Paskova/The New York Times) less

Valeri Bolkvadze, one of 185 employees at Dumbo Moving & Storage, where 50 of the workers are on salary, waits at a service elevator after packing up an apartment in New York, May 16, 2016. Employers say a ... more

Photo: YANA PASKOVA, NYT

Overtime pay extended to millions under new federal rule

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The U.S. Department of Labor on Wednesday made an estimated 4.2 million workers potentially eligible for overtime pay by roughly doubling the salary level below which they cannot be denied overtime under the so-called white-collar exemption to the federal Fair Labor Standards Act.

Effective Dec. 1, workers cannot be denied overtime pay under this exemption if they make less than $913 per week or $47,476 a year for a full-time employee.

Since 2004, that salary level had been stuck at $455 per week or $23,660 a year, except in states including California and New York, which have their own, higher cutoffs.

In California, the standard is two times the prevailing minimum wage. With the statewide minimum wage at $10 per hour, that works out to $800 a week or $41,600 a year — lower than the new national standard. That means many California workers could benefit from the labor department’s new rules, except in a few cities where the minimum wage is higher than $11.41 per hour. In San Francisco and Oakland, the minimum wage is $12.25 per hour.

According to the Labor Department, an estimated 146,000 workers in California fall between the state’s salary threshold and the new, higher federal standards.

The entire state will surpass the federal standard in 2019, when California’s minimum wage hits $12, said Alden Parker, regional managing partner for the Fisher & Phillips law firm, which represents employers.

Under federal law, employees must be paid overtime (1½ times their normal rate) for any hours that exceed 40 per week, unless they qualify for one of many exemptions. (In California, they also must be paid overtime if they work more than eight hours in one day.)

To fall into these exemptions, employees must perform certain duties and be paid a salary above a certain amount. Employees can fall under the executive exemption, for example, if they regularly supervise at least two other full-time employees and have the authority to hire and fire.

The new rule raises the salary limit, but not the duties — which are open to interpretation and the subject of many lawsuits.

Worker advocates say that many employers misclassify employees as managers to avoid paying them overtime. Simply paying workers a salary, rather than an hourly wage, does not automatically make them exempt.

The rule also raises the annual compensation limit that applies to workers who qualify under the “highly compensated employee” exemption to $134,004 from $100,000. This exemption applies to employees who don’t supervise anyone but are involved in the administration of the enterprise, such as a comptroller, said Steven Suflas, managing partner with the law firm Ballard Spahr, which represents employers.

The new rule also establishes a mechanism for updating the salary and compensation levels every three years to keep pace with wage inflation.

The new rule does not apply to other exemptions under the federal law, such as those that exempt teachers, agricultural workers and outside salespeople from overtime, Suflas said.

“A lot of teachers are exempt from overtime, even if they are making $25,000 a year,” said Cathy Ruckelshaus, general counsel with the National Employment Law Project.

Her organization, which represents workers, favors the new rule. “We think it’s very important, and it would give a raise to a lot of workers who are working long hours for very little pay,” she said. But it won’t guarantee that everyone covered by the new rules will earn more money.

“The employer can react in a number of ways,” Ruckelshaus said.

A company could give workers a raise that brings them above the new standard of $47,476 and continue to classify them as administrative, professional or executive employees. It could keep them at their current salary and pay them overtime for any hours over 40 per week. Or it could keep them at their current wage and hire another person to cover the extra hours they had been working.

Parker predicts that with the minimum wage increase coming, employers in California will “convert salaried employees to hourly employees, rather than raise their salary.” They will be also will be less likely to promote hourly workers to salaried status.